http://www.standardandpoors.com 321market transactions with credit rated and volatility
rated funds.
These market transactions may include, but are
not limited to repurchase agreements (repos),
reverse repos, forward purchases, forward exchange
contracts, swaps and other hedging positions. A
counterparty’s failure to meet its obligations con-
tracted with a fund may impair the successful out-
come of its intended objectives. Due to this risk,
Standard & Poor’s criteria calls for a counterparty’s
minimum rating to be no less than one full rating
category below the fund’s rating for transactions
spanning one year or longer. For example, ‘AAAf’
and rated funds would need to use ‘AA’ or better
rated entities for transactions equal to or greater
than one year. Counterparty Criteria for all rating
categories are as follows:
■AAAf—Long-term transactions (i.e., one year or
longer)-AA or better. Short-term (i.e., less than
one year): A-2 or better for overnight transac-
tions; A-1 or better for longer than overnight.
■AAf-Long-term transactions (i.e.,one year or
longer)-A or better. Short-term (i.e., less than one
year): A-2 or better for overnight transactions;
A-1 or better for longer than overnight.
■Af—Long-term transactions (i.e., one year or
longer)-BBB or better. Short-term (i.e., less than
one year): A-2 or better.
■BBBf—Long-term transactions (one year or
longer)-BBB or better. Short-term (i.e., less than
one year): A-3 or better.
Volatility ratings analysis
Standard & Poor’s volatility ratings are designed to
rank or designate bond funds or variable NAV
pools according to the degree to which they are
exposed to the factors that ultimately lead to share
price and return volatility. The volatility ratings
scale, which ranges from ‘S1’ (lowest sensitivity) to
‘S6’ (highest sensitivity), expresses Standard &
Poor’s current opinion of a fixed-income fund’s sen-
sitivity to changing market conditions. The volatili-
ty profiles of the first four categories (‘S1’ through
‘S4’) are measured and expressed on a relative basis
to established government indices with different
maturity bands (see Variable Net Asset (NAV) Pool
Volatility Ratings Definitions), to provide investors
with market benchmarks for risk and return com-
parisons. Standard & Poor’s evaluation of funds for
volatility ratings includes:
■Portfolio risk analysis
■Historical risk analysis
■Management assessmentGovernment Investment PoolA bond fund/variable net asset value (NAV) pool volatility ratings is a current opin-
ion of a fixed-income fund’s sensitivity to changing market conditions relative to
the risk of a portfolio composed of government securities and denominated in the
base currency of the fund. Volatility ratings evaluate the fund’s sensitivity to inter-
est-rate movement, credit risk, investment diversification or concentration,
liquidity, leverage and other factors.
S1
Bond funds that possess low sensitivity to changing market conditions are rated
S1. These funds possess an aggregate level of risk that is less than or equal to that
of a portfolio comprised of government securities* maturing within one to three
years and denominated in the base currency of the fund. Within this category, cer-
tain funds are designated with a plus sign (+). This indicates the fund’s extremely
low sensitivity to changing market conditions. These funds possess an aggregate
level of risk that is less than or equal to that of a portfolio comprised of the highest
quality fixed-income instruments with an average maturity of one year or less.
S2
Bond funds that possess low to moderate sensitivity to changing market conditions
are rated S2. These funds possess an aggregate level of risk that is less than or
equal to that of a portfolio comprised of government securities maturing within
three to seven
S3
Bond funds that possess moderate sensitivity to changing market conditions are
rated S3. These funds possess an aggregate level of risk that is less than or equal
to that of a portfolio comprised of government securities maturing within seven to
10 years and denominated in the base currency of the fund.
S4
Bond funds that possess moderate to high sensitivity to changing market condi-
tions are rated S4. These funds possess an aggregate level of risk that is less than
or equal to that of a portfolio comprised of government securities maturing beyond
10 years and denominated in the base currency of the fund.
S5
Bond funds that possess high sensitivity to changing market conditions are rated
S5. These funds may be exposed to a variety of significant risks including high
concentration risks, high leverage, and investments in complex structured and/or
illiquid securities.
S6
Bond funds that possess the highest sensitivity to changing market conditions are
rated S6. These funds include those with highly speculative investment strategies
with rated S6. These funds include those with highly speculative investment strate-
gieswith multiple forms of significant risks, with little or no diversification benefits.
- Government securities (for S1 through S4 categories) are intended to signify the most
liquid, highest quality securities issued by a sovereign government. The ratings are
based on current information furnished by the fund to Standard & Poor’s or obtained by
Standard & Poor’s from other sources it considers reliable. Standard & Poor’s does
not perform an audit in connection with any rating, and may rely on unaudited
financial information. The ratings may be changed, suspended, or withdrawn as a result
of changes in, or unavailability of, such information, or based on other circumstances.
The rating is not a recommendation to purchase, sell, or hold any security held or issued
by the fund, inasmuchas it does not comment on market price, yield, or suitability for a
particular investor.
Variable Net Asset Value (NAV) Pool Volatility Ratings Definitions